US ICT firms offshore tax activities deny government $89bn

There is no denying that global companies like to use every legal trick in the book to minimise their tax payments, often engaging in complex accounting and sales practices that route business and funds through several tax-friendly countries (we reported on the bizarre ‘Double Irish Dutch Sandwich’ some time ago). But a new report from the UK-based Bureau of Investigative Journalism, an independent not-for-profit organisation, shows the extent of the tax savings from four of the leading US ICT companies – Apple, Microsoft, Google and Cisco.

The Bureau studied the Securities & Exchange Commission (SEC) disclosures of ‘the big four’ and found that they hold $163 billion in US government debt. Of this, $124bn is believed to be in US Treasury securities, with the remaining $39bn held in US government agency debt. Collectively, these four companies would be the 14th biggest overseas purchaser of Treasury securities.

In total, the four firms have accumulated cash, cash equivalents and marketable securities worth $255bn in their foreign subsidiaries, which they state in SEC filings could be liable for corporation tax if repatriated to the US. At the current US corporation tax rate of 35 per cent, it would produce a $89bn windfall for the US Treasury – equivalent to 17 per cent of the country’s projected $514bn budget deficit this year.

But there is no sign that these funds are returning to the US any time soon. The 35 per cent tax rate is known to be one of the main reasons, with many companies considering it far too high in the context of the wider global economy in which they operate. The US tax rate is the highest among the OECD’s 34 member countries.

In fact, Apple has already stated that it believes it is the largest corporate income tax payer in the US, having paid nearly $6bn in taxes to the US Treasury in 2012.

“If a US multinational puts its offshore cash into a US bank and uses the money to buy US treasuries, stocks and bonds, those funds ought to be treated as having been repatriated and subject to US tax,” commented Senator Carl Levin, chairman of the Senate’s permanent subcommittee on investigations.

Last September, Moody’s credit rating agency reported that over a thousand of the biggest US non-financial firms hold $1.48 trillion in cash, a situation that could potentially destabilise global financial markets. The four companies mentioned in the Bureau’s report (Apple, Microsoft, Google and Cisco) together account for over one fifth of the US corporate cash stockpile. And earlier this week, Bloomberg reported that the 317 largest US-based companies have accumulated $1.95 trillion outside the US – up almost 12 per cent on last year.

“We have got a new savings glut – a corporate savings glut – and what’s driving it is tax,” said Cormac Hollingsworth, research associate at the Social Market Foundation think tank. “We have a situation in which activist shareholders in many of these companies are trying to repatriate corporate cash to boost shareholder value. We should be worried that we have created a new glut of savings that could lead to a repeat of the financial crisis seven years ago.”

The Bureau of Investigative Journalism is an independent not-for-profit organisation. Based at City University London, it was established in 2010 and is philanthropically funded. Its work is freely available under a Creative Commons licence. The report on the tax activities of the US tech firms was authored by Nick Mathiason.

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